This in turn led to a 0.36 percent reduction in the country’s total gem and jewelry exports. The figures indicate that the Indian government’s measures to curb circular trading or so-called “round-tripping” have been successful.

 

When compared with the previous fiscal year, Indian polished diamond exports dropped by nearly $5 billion. Cut and polished diamond exports in fiscal 2011-12 stood at $23.33 billion as against 28.22 billion in 2010-11.

 

“We are happy that in keeping with the government objective of reducing the trade deficit, imports of cut and polished diamonds have dipped after the introduction of a 2 percent import duty in mid-January 2012," said Rajiv Jain, Chairman of the Gem & Jewellery Export Promotion Council (GJEPC).

 

"However, an increase in the import figures of rough diamonds indicates the stable growth of the trade at the manufacturing level and a growth in exports.”

 

Indian rough diamond imports have climbed to $15.13 billion compared to $11.98 billion in the previous fiscal year. Most of the increase reflects soaring rough diamond prices. Reinforcing this, in volume terms, rough diamond imports have dropped from 154.2 million carats in 2010-11 to 131.4 million carats in 2011-12.

 

Jain noted that in the month immediately after the imposition of the duty, imports of cut and polished diamonds dipped 70 percent. That sharp reduction and the subsequent low imports of polished in the succeeding 45 days to the end of the fiscal year also helped bring down polished imports for the whole year by 30 percent the GJEPC Chairman added.

 

Jain also observed that the 0.36 percent drop in overall exports had to be considered in the light of a rupee that dropped sharply in value against the US dollar over the period. “Total exports have increased 4.6 percent in rupee terms,” he said, adding, “Gems and jewelry accounted for 14 percent of India’s merchandised exports in 2011-12.” The Chairman noted that a growth in gold jewelry exports had been the main driver for this increase, registering $16.52 billion as against $12.7 billion the previous year.

 

GJEPC’s outlook for the first quarter of the current fiscal year (April-June) is positive and that the export production industry would achieve higher value addition and would improve the country’s trade balance in the months to come.

 

“Round-tripping” involves the same parcel of diamonds making repeated export journeys to a company’s office at some tax-free overseas location, having being re-imported to India after each export. The “round trips” help a company show increased turnover and thus give it access to greater bank finance at special rates. In some cases, these round trips also help launder money.

 

Round tripping surged after 2008, when the then Finance Minister scrapped a 3 percent import duty on polished diamonds. That measure was intended to allow the free flow of diamonds in and out of the country towards achieving the objective of making it a gem and jewelry trading hub.

 

This phenomenon, which also takes place with gold – a simple medallion is exported as ‘jewelry’, only to be re-imported as primary gold – has impacted the country’s foreign trade figures significantly and has made a mockery of the country’s huge gross gem and jewelry export figures. In fiscal 2010-11, India showed a whopping $43 billion in gem and jewelry exports, but a $42.45 billion import figure, which included $20.81 billion in polished diamonds, reduced net exports to a paltry $550 million. The country’s terrific $28.22 billion in polished diamond exports also translated into a net export of just $7.41 billion.

 

India’s gross gem and jewelry exports for fiscal 2011-12 stand at $42.84 billion, pretty much around the same figure as the previous year. Imports of raw material including gold and polished diamonds actually increased to $42.65 billion. This increase is attributed to the fact that the measures to curb the import of polished diamonds were introduced with less than three months of the fiscal year remaining. Gold imports continued unimpaired and tariff barriers to curb them have only just been introduced, with the double of import duty from 2- to 4 percent.

 

Jain said that a series of measures initiated by the GJEPC would help boost trade. An ‘India Show’ was planned for the JCK Las Vegas show and the GJEPC would focus on Russia and China as key export-growth markets in addition to the US, Europe and the UAE.

The GJEPC Chairman also announced that the 2012 IIJS trade show would run from August 23 to 27.